US stocks retreat on fears of a global liquidity squeeze from soaring UK gilt yields. The sterling plummets while a dovish Fed outlook supports Gold's surge to a new all-time high.
US stock indices pare losses, Sterling extends decline, Gold holds firm
The US stock market reopened with a whimper on Tuesday, 2 September, after the Labour Day holiday. All four major benchmark US stock indices plummeted in the range of -1.3% to -1.8% in the first half of yesterday’s US session due to fears of a global liquidity squeeze triggered by a significant spike in the long-term 30-year UK gilt yield to a 27-year high at 5.69% over government budget woes in the UK.
Interestingly, the earlier steep intraday losses seen in the US stock indices were trimmed by at least 50% by the end of the US session, where the small-caps Russell 2000 outperformed and closed unchanged. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average ended with losses at -0.7%, -0.8%, and -0.5%, respectively.
The catalyst that led to the intraday push-up in the US stock market is likely the increased bets of a Fed dovish pivot to finally materialise in this month's FOMC meeting on 17 September. Based on the latest data from the CME FedWatch tool, the Fed Funds futures market has assigned a high probability of 91% that the Fed is likely to cut by 25 basis points (bps) on 17 September to bring the Fed Funds rate to 4.00%-4.25%, an increase from last week’s odds of 89%.
Yesterday’s biggest mover among the major currencies in the FX market was the sterling, as it plummeted by -1.1% against the US dollar, dragged down by the swift jump in the 30-year UK gilt yield that drew similarities to the 2022 gilt crisis triggered by former UK Prime Minister Liz Truss’s “mini” budget.
In today’s Asia session, the sterling extended its losses by -0.2% against the greenback at the time of writing, where the GBP/USD is trading at 1.3360, just a whisker away from a key medium-term support zone of 1.3315/1.3280.
The Aussie traded firm with a minor intraday loss of 0.1% against the US dollar, supported by Australia’s Q2 GDP growth, which surpassed estimates (actual: 1.8% y/y, consensus: 1.6% y/y). The AUD/USD is now trading at 0.6510, having risen above its 20-day moving average after dropping to an intraday low of 0.6484 at the start of yesterday’s US session.
Gold (XAU/USD) continued to skyrocket as the yellow metal accelerated further and extended its gains to a 6th consecutive session to print a fresh all-time closing high of US$3,534 yesterday, supported by an anticipation of a dovish Fed pivot coupled with concerns over the health of developed nations’ government finances.
Slight profit-taking activities are being seen in Gold (XAU/USD) in today’s Asia as it shed by -0.1% to an intraday level of US$3,530 with a key short-term support to watch at US$3,500.
Our YouTube video above contains the latest intraday technical analysis on the US Wall Street 30, US Nas 100, US SPX 500, Hong Kong 33, Japan 225, Germany 30, EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold (XAU/USD), and West Texas Oil.
